Textile Manufacturer – Importer of Goods

Business Challenge

Company A purchases from China throughout the year, with payments occurring on a bi-monthly basis. Since Company A has revenues in CAD, its current payment process involves a currency conversion from CAD to USD, with the US funds then being sent via wire payment to China.

The CFO has heard from members of his trade association that the RMB is becoming more accessible and is increasingly being used in cross-border trades. He is mindful that he is being charged an inflated USD price by his Chinese suppliers to account for their currency exposure risks. The CFO is eager to explore the possibility of paying his suppliers directly in RMB to ascertain if he can reduce his costs. He approaches his corporate banker to explore options.

Sector Background

The clothing manufacturing sectors represented nearly $3 billion of Canada’s imports from China in 2014, the third highest amount of imports of any sector.

Imports have grown at a compound annual growth rate of 1.67% over the last five years.

Solution

Company A takes on FX risk, paying suppliers in RMB, removing FX premium.

Company A purchases using a spot trade or a hedging product.

Outcomes

Company A has been able to establish better procurement terms with Chinese suppliers.

Improved payment flexibility means that Company A can expand suppliers.

Cost savings have resulted in improved competitiveness and customer satisfaction.

Next Steps

Aerospace Manufacturer – Multinational

Business Challenge

Having seen an increase in sales in aerospace products and parts, Company D switched to RMB invoicing in 2012 and manages its RMB exposure in the same manner as any other currency.

Now comfortable with the amount of liquidity in the offshore RMB market, Company D wants to improve on how it manages its intercompany loans between its central treasury and its subsidiary in China on a corporate basis to avoid taking out loans with a third party.

Sector Background

The aerospace product and parts manufacturing industry is important to Canada’s manufacturing sector, contributing $27.8 billion to Canada’s GDP and employing 172,000 people in Canada in 2013.

It is also a top 10 exporting industry to China, with nearly $500 million in exports to China in 2014.

Solution

Company D applied to SAFE for a quota.

Company D has put cross-border RMB pooling in place between its central treasury department and its subsidiary in China.

Outcomes

Financing costs have gone down.

It is easier to move money in and out of China – less paper work and reduction in manual processes.

It has created greater flexibility to make payments to suppliers in RMB, pay employees and make investments.

Next Steps

Mining Company – Multinational

Business Challenge

Although financing is still done mainly in USD, Company C recognized the strategic importance of using RMB and in 2012 it opened RMB accounts in Singapore and London. It has done some transactions, however time zone differences have made it somewhat difficult to manage from a cash management perspective.

Now that there is a Canadian hub, Company C wants to manage risk at its head office in Canada.

Sector Background

Canada’s mining industries exported over $3.1 billion of goods to China in 2014, the second largest amount of exports to China of any sector.

Solution

Company C made a strategic decision to concentrate and manage its risk in Canada.

Company C opened a RMB account in Canada to receive RMB payments.

Company C set up internal processes to enable trading in RMB products.

Outcomes

RMB is now used for inter- company trade and to pay external suppliers, reducing costs.